Dutch pension fund increases hedge funds weighting

Dutch pension fund ABP has increased its exposure weightings to hedge funds by 1% in an attempt to cut its investment risk profile over the next five years.

This increased hedge fund exposure is part of a wider recovery plan submitted by ABP to the regulator, the De Nederlandsche Bank (Dutch Central Bank), to achieve a cover ratio of at least 105% after five years.

The cover ratio measures the ratio between a fund's assets and future liabilities. It fell to 90% at the end of 2008 from 140% at the end of 2007. The drop was mostly due to a fall in stock prices which pushed up the value of future liabilities.

A spokesperson for the fund said in the long term a modest allocation to hedge funds was expected to lower the value fluctuations of the total investment portfolio of a pension fund. "It is also expected to decrease the risk that future assets are not sufficient to cover future liabilities," he added.

As part of its plan ABP has also increased its exposure weightings to convertible bonds and infrastructure by 3%.Its weight for stock investments has been decreased by 3 percentage points to 29%.

According to a statement from ABP, recovery from under-funding should be achieved in approximately four years.

ABP is the world's third-biggest state pension fund managed with $231 billion in assets at 31 December 2008.